Investment Strategies for Retirement Flashcards
7 cards from real CRPC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Investment Strategies for Retirement flashcards as text
A 70-year-old retiree has all her savings in certificates of deposit earning 1.5%. The GREATEST long-term risk she faces is:
Answer: Purchasing power (inflation) risk
With CDs yielding below inflation, her real purchasing power erodes each year, meaning her savings will buy progressively less over a potentially 20-30 year retirement.
A couple wants guaranteed income to cover essential expenses in retirement. Which product BEST provides this guarantee without market risk?
Answer: Single premium immediate annuity (SPIA)
A SPIA converts a lump sum into a contractually guaranteed income stream for life, eliminating both investment and longevity risk for essential expense coverage.
In the context of retirement planning, what does 'sequence of returns risk' primarily describe?
Answer: The risk that poor returns early in retirement permanently impair the portfolio
Sequence of returns risk is the danger that negative returns early in retirement, combined with ongoing withdrawals, deplete the portfolio before recovery can occur.
Which alternative investment is MOST commonly recommended to improve diversification within a retirement portfolio?
Answer: Real Estate Investment Trusts (REITs)
REITs offer real estate exposure with daily liquidity, pass-through dividends, and historically low correlation to core equity holdings, making them the most practical diversifier.
A retiree uses a 'flooring strategy.' The floor is BEST described as:
Answer: Guaranteed income streams that cover essential living expenses
In the flooring strategy, guaranteed income sources (Social Security, pensions, annuities) cover essential expenses, while the upside portfolio is invested for growth.
Which withdrawal strategy is MOST tax-efficient for a retiree with both traditional IRA and Roth IRA assets?
Answer: Withdraw from taxable accounts first, then tax-deferred, then Roth
The conventional order (taxable → tax-deferred → Roth) allows tax-advantaged accounts to grow longer, though Roth conversions in low-income years may improve on this further.
A client's portfolio returned 10% in year 1 and -10% in year 2. What is the geometric (compound) average return?
Answer: -1%
Multiplying (1.10 × 0.90) = 0.99, so the geometric mean is √0.99 - 1 ≈ -0.5%, not 0%, because gains and losses are asymmetric.